And by logical conclusion those sovereign states that rely on Oil income – have to now weigh up the options of continued borrowing or selling assets through their Sovereign Wealth Funds.
Sovereign Wealth Funds are big – huge – enormous in fact.
Now whoever compiled this list at the Sovereign Wealth Fund Institute was somewhat optimistic – like $10 trillion by 2020.
I know this future figure is bullshit in the current and near future economic environment – and me thinks that those in control of the SWF’s know it is bullshit as well.
Being a realist SWF’s can invest anywhere – provided of course the investment is graded AAA – and as the SWF does not have any cost of capital the time horizon can be stretched a fair bit.
Except of course when one has to sell assets to supplement the ever decreasing deficiency in the host Country’s capital account.
Timing is everything – and what does not assist decisions is a deflationary environment, zero interest rate regime and extremely low oil price.
Oil prices now are a burden – demand has dropped in line with global trade. All countries have excess supply – all reserves full.
One can borrow – a la’ Saudi Arabia – but the deferral of asset sales has a profound affect on the Balance Sheet – assets – in this environment – are eroded through deflation and values – as defined by Demand and Supply.
Saudi Arabia is a big investor in Glencoe – commodities crash – values crash.
Expect this to reduce even more over the coming 18 months.
Saudi Arabia now looking at selling a stake in their own infrastructure project Aramco – amazing what happens when expenses within the Government exceed available income.
If one was to invest in Aramco – how would one trust the House of Saud and current management?
Looking at the big picture if Saudi Arabia does not even care about human rights – then why would they care about shareholder rights?
Countries dependent on oil for income can offset the oil price decline by cutting interest rates – depreciating their currencies – but when every commodity reliant country is doing the same thing a problem arises.
Non-oil sectors take the slack?
Who planned this far ahead – who would have thought – that global demand would just die and that arse would drop out of all commodities?
Sovereign Wealth Funds were established to initiate investment in time of need – problem though – is the exorbitant cost to a socialist economy.
Investments globally are dropping more than expected
So the stage is set – asset sales from SWF’s of those oil producer nations.
What assets would be liquidated – or could be liquidated in this environment of zero interest rates – without disrupting the markets?
No guessing the answer – none – zilch.
China may have offloaded 30 year treasuries discreetly – in the first half of 2015 – but these funds have a different – more aware – marketplace to offload assets.
A highly volatile market.
- Bonds – Sovereign Bonds
- Equities – Dow / Dax / FTSE
- Real Estate – Global
- Precious Metals
- Global Infrastructure
One presumes that global infrastructure has a long term horizon – bonds are subject to devaluation through the currency wars – then one has commodities – no demand no realistic price.
Now this gets interesting when one looks at equities – and yes a fair slice of SWF’s is invested in the global equity market.
So equities – Dow / Dax / FTSE / ASX / Nasdaq etal.
Obvious question – in even looking at the Swiss National Banks near ten percent investment in AAPL – how do they divest these shares at a fair price without upset the markets equilibrium?
Take Norway as an example – socialist country – high cost of population maintenance – interest rates near zero and currency devalued.
Not pretty – liquidation of assets now required and one has a suspicion that other SWF’s will not acquire off market – as they are all in the same boat.
Note: Cash is king – volatility the key in all markets – there is a long way to go before we even see the bottom.
A lot of people will be raiding the global piggy bank.